Why Some People Tend to Keep Their Money in a Bank Instead of Investing It

Imagine two people each have Ksh500,000 in savings. One invests the money in a Money Market Fund, government bond or another investment product.

The other leaves the entire amount in a bank savings account earning little interest.

Years later, the investor may have significantly grown their money, while the bank saver has earned only modest returns.

Yet this behaviour is surprisingly common.

Even when people learn that other investments may offer higher returns, many still choose to keep most of their money in the bank.

Why? The answer may lie in a psychological tendency known as Familiarity Bias.

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Why We Trust What We Know

Familiarity Bias is the tendency to prefer things we already know and understand over alternatives that feel unfamiliar.

In the world of finance, this means people often trust products they have used for years, even when other options may be better suited to their goals.

For many people, the bank is one of the first financial institutions they interact with.

It is where they receive their salary, save money and pay bills. Over time, the bank becomes familiar and comfortable. As a result, keeping money there feels safe.

One reason banks feel reassuring is that people can easily check their balances whenever they want.

The money appears instantly on a mobile app, ATM screen or bank statement. This creates a sense of control.

Investments, on the other hand, may feel less familiar.

Terms such as MMFs, Treasury Bonds, Unit Trusts and REITs can sound complicated to someone who has never used them before.

Even when these investments are regulated and relatively straightforward, unfamiliarity can create hesitation.

Many people would rather stay with what they know than spend time learning something new.

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Effects of Familiarity Bias 

The problem with Familiarity Bias is that our brains often confuse familiarity with safety. Just because something feels familiar does not necessarily mean it is the best option.

For example, someone may leave a large amount of money in a savings account earning minimal interest because they trust the bank.

At the same time, they may avoid exploring investments that could potentially help their money grow faster. The decision is not always based on returns, risk or financial goals.

Sometimes it is simply driven by comfort.

Familiarity Bias is especially common when people hear about investments they do not fully understand. Instead of researching them, they often default to what they already know.

This feeling can be powerful enough to prevent people from exploring alternatives that may be suitable for them.

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How to Overcome Familiarity Bias

The first step is recognising that unfamiliar does not automatically mean risky. Many investment products seem intimidating simply because people have never taken the time to learn about them.

Other ways to overcome Familiarity Bias include:

1. Learning the basics of different investment products before dismissing them.
2. Comparing options based on their features, risks and potential returns rather than familiarity alone.
3. Starting small when trying a new investment.
4. Seeking information from licensed financial professionals and reputable institutions.
5. Reviewing whether your current savings strategy aligns with your long-term goals.